Employer-sponsored 401(k) retirement accounts have become the primary retirement plans for the majority of investors. They are easy, effective and automatic-saving tools.

Not to mention, many employers offer matching contributions, creating a powerful strategy to build retirement wealth. On the other hand, self-directed investors can increase the punching power of their 401(k) holdings by building their own portfolio of Retirement Savings Stocks, as Carla Pasternak, chief strategist of High-Yield Investing calls them.#-ad_banner-#

Investing both in a 401(k) account and a self-directed portfolio allows investors to combine the compounding profits from dividend reinvestments and stock gains with the added benefits of their 401(k) employer-matching program.

But what percentage of your capital should be allocated to your 401(k) and to a self-directed portfolio?

There’s no magic formula. This is purely a personal decision based on your goals and risk tolerance. [Carla has been telling her readers for years now about reliable high-yielding stocks for their retirement in her monthly advisory.]

But now that you know where to find great suggestions for Retirement Savings Stocks, how can you be certain the other part of your savings plan is working optimally for your 401(k)?

Here’s the answer…

At a minimum, contributing to the maximum of your employer’s matching funds in the 401(k) makes the most sense. Think of it as an instant 100% return on your capital. For example, if your employer matches up to 3% of your 401(k) contribution, then your investment is automatically doubled. You simply can’t get better guaranteed returns.

[See also: “Ask The Expert: Should You Still Contribute To An Underperforming 401k?”]

Here are three other important facts to know about your 401(k):

Fees
Nothing in the investment world is free. Even with 401(k) plans, there are fees and costs involved. The law states that the fees of a 401(k) plan must be reasonable, which is very subjective. Larger plans generally have lower fees than smaller ones due to economy of scale.

The average 401(k) plan charges 0.72% annually of the plan’s assets. You can use this number as a benchmark to determine whether your plan’s fees are reasonable. But remember: You often get what you pay for. Higher-fee plans will likely offer more bells and whistles such as automatic enrollment, annual escalation and personalized progress reports than lower-cost plans, which will most likely be bare-bones operations. If you are uncertain about the fees you plan charges, then I suggest you visit BrightScope, an independent 401(k) plan-rating service.

Allocation
As I stated earlier, this depends on your goals. It makes the most sense for everyone, at a bare minimum, to contribute the amount your employer matches.

If you have had success, or enjoy investing on your own, then your portfolio mix can lean heavier toward a self-directed account. However, if you prefer to allow the professionals at your 401(k) choose your investment mix, then you should obviously take advantage of their expertise.

The general rule of thumb is to save about 11 times annual earnings if you want to maintain the same standard of living during your retirement years.

Target-date funds
If you are more comfortable with a hands-off approach to your 401(k), then target-date funds are for you. All you need to do is to choose a fund with a date that corresponds to your expected retirement year and start maxing out contributions to this fund. The target-date fund will automatically change the mix of stocks and bonds according to how close you get to retirement.

The concern with these types of funds is that returns can vary widely from each plan issuer, depending on their chosen investment mix. If you want to check the performance of a particular target-date fund, then visit Morningstar.com, where you can find ratings and reports for 22 families of these types of funds.

Risks to Consider: If you are uncertain about managing your 401(k) plan, then it’s wise to consult a licensed financial advisor for personalized advice. Remember the guidelines above are only suggestions and basic starting points. Everyone is different and should take their own personal circumstances into consideration when making retirement decisions.

Action to take –> Investing in a 401(k) plan and a self-directed account as soon as possible will increase your odds of having a solid nest egg by retirement. If you are already well on your way to retirement, then take some time to review your plan to make sure it’s on the right track.

P.S. — Who couldn’t use a second retirement income these days — one that could pay you an extra $25,000, $45,000, even as much $55,000 every year? With that kind of extra money you could golf every day… eat out every night… go to Hawaii three or four times a year… and still have more than enough left over to fund your children’s or your grandchildren’s college education. That’s the kind of second income these little-known stocks and funds could hand you — and then some.